Case Study: Carenetwest

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CareNetWest (CNW) is a large healthcare company that has grown almost exponentially in the past two years. In addition to dealing with issues of rapid growth, they are now facing required adherence to the Sarbanes-Oxley Act of 2002. Publicly owned companies are compelled to disclose all matters related to financial activities within the organization to minimize any possibility of dishonest financial disclosures to the public. Section 404 of the Sarbanes-Oxley Act requires public companies to include a report about the effectiveness of controls in their annual form 10-k. Internal controls consist of procedures used by management to ensure accuracy and reliability in performing certain business functions such as financial reporting. Along with…show more content…
Tad Smith, Chairman of the Board and CEO of CareNetWest, finds he may have overlooked paying attention to important governance, reporting, and regulatory compliance issues (University of Phoenix, 2007). His Chief Risk Officer has just resigned, citing insufficient expertise and infrastructure to manage non-financial, financial regulatory and corporate governance issues. After talking to his CFO who is more of an investment banker than financial controller, his General Counsel, and outside accounting firm, Tad realizes that CareNetWest falls short of meeting the regulatory reporting requirements. Two very important compliance issues are on the near horizon and CareNetWest must pass the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) review, and SOX section 404 compliance. “Section 404 creates an ongoing requirement for management and, over time, should cause companies to continue to monitor and strengthen their internal control over financial reporting” (Deloitte 2004). Time is running out and he does not have to right people or systems in place to get the job done. The issues to that are critical to CareNetWest at this point in time, are passing the JCAHO review, and the SOX 404. Because CareNetWest is in the Healthcare business, it must comply with various state and federal medical regulations. The most important from a financial standpoint is the JCAHO. CareNetWest must pass the JCAHO review to maintain eligibility for Medicare…show more content…
2 established by the Public Company Accounting Oversight Board (PCAOB), 1 requires management of a public company and the company’s independent auditor to issue two new reports at the end of every fiscal year. These reports must be included in the company’s annual report filed with the Securities and Exchange Commission (SEC). • Management must report annually on the effectiveness of the company’s internal control over financial reporting. • In conjunction with the audit of the company’s financial statements, the company’s independent auditor must issue a report on internal control over financial reporting, which includes both an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting. (Deloitte, 2004) The governance issues will require CareNetWest to rethink its organizational structure. Several required positions are currently vacant and Tad is currently in violation by filling both the Chair and CEO positions. CareNetWest will need to address areas of material
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